XCHRX KWONG FAT HONG (a firm) v. CHAN WAH YU

HCA4458/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4458 OF 1998

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J U D G M E N T

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1. This is an appeal from the Order of the Master whereby the Master refused to set aside a default judgment but instead reduced the default interest rate on the Judgment from 20% to 10%.

2. The claim here is by a licensed money lender against a debtor in relation to a transaction some time ago. There is no dispute that the Judgment was a regular judgment, and that in order for the court to set aside the default judgment, the defendant has to show that it has not only merits, but that the merit is such that it has a good prospect of success at the trial. Well known cases such as Alpine Bulk Transport Co. v. Saudi Eagle Shipping Co. [1986] 2 Lloyd's Rep.221 and Premier Fashion Wears Ltd v. Li Hing Chung [1994] 1 HKLR 377 had been cited.

3. Three points had been advanced by Mr Chan for the defendant in defence of the claim brought. It seems to me that it is only necessary to consider the first two points. The first point that was said by Mr Chan is that there was a breach of section 18(1) of the Money Lenders Ordinance, Cap.163. What happened was that a copy of the Memorandum was not given to the defendant at the time of the transaction, but in fact much later. So there is a breach of section 18(1). Section 18(3) reads :

" (3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable."

Section 18(1), of course, earlier said that :

"18. (1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement ..., shall be enforceable..."

4. The contention of Mr Liu, for the plaintiff, is that having regard to the material before the court, the defendant does not have a good prospect of success at the trial. On this issue, I disagree. It seems to me that not only does the defendant have a good prospect of success, but that the defendant is more likely to win on this point.

5. At a trial earlier last year in the case of Yelsen Finance Holdings Limited v. Chan Mei Suen, HCA 7506 of 1998, I held, again on a similar point of a breach of section 18(1) for non-giving of the copy of the memorandum within time, that the contract was not enforceable. The matter was taken to appeal and the Court of Appeal upheld my decision.

6. The emphasis of the law is on 'unenforceability' if there is a breach of section 18(1), and the burden is squarely on the money lender to show such circumstances as may persuade a court that notwithstanding the breach, it will be inequitable not to enforce it in some way. So the burden is on the plaintiff in all the circumstances, including the way the contract was entered into, the reasons for not giving the copy - whether it was deliberate or not  - and so on and so forth. All that had to be gone into before a plaintiff has the possibility of persuading the court that the contract should be enforced.

7. So in my view, the defendant has plainly discharged the burden of showing that it has got a good prospect of success on this point.

8. The second issue or defence raised by Mr Chan for the defendant is that the penalty provision in relation to the interest, that is the default interest rate from 10% raised to 20%, is in breach of section 22(1)(c) of the Money Lenders Ordinance. There is a similar proviso in section 22(2) and the same point also, it seems to me, applied. The fact that there was this provision makes it clear that it is the burden on the plaintiff to show to the court at the trial in that in all the circumstances, notwithstanding this breach, somehow the court would still allow a suitable enforcement of the contract, or part of the contract. It was said that the Master in the court below agreed to reduce the default interest rate from 20% to 10%, but that is not the point. The point is should it be enforced at all, not whether it should be enforced at the reduced rate. I believe the Master was wrong to regard the reduction from 20% to 10% as saving the contract. In my view, it must go to trial on this point as well.

9. In the circumstances, it is not necessary for me to consider the third point raised by Mr Chan on the question involving Miss Li's debt being included in the account of the defendant. I hold, therefore, that the appeal is successful and that the default judgment should be set aside.

10. In so far as costs are concerned, I think the defendant is entitled to costs of the appeal.